In conversation with Thomas Ronk of Buyins.net
As the founder and CEO of Buyins.net, Thomas Ronk has created a proprietary database and trading strategy based on short sale timing and sales data that was not accessible to anyone prior to January 2005. As a registered representative of Transamerica Financial Resources, a division of Transamerica, Mr. Ronk managed more than $150-million in equity accounts from 1993 until 1998. He has 27 years of trading experience and is the principal of Century Pacific Investments, a registered investment advisor in California. Prior to the investment business, Mr. Ronk studied Electrical Engineering and Computer Science at the University of California in San Diego. In this interview with BioTuesdays, Mr. Ronk discusses manipulative short selling and how his company helps clients to analyze and develop a plan to deal with it.
Let’s begin with a brief history of your company.
Back in 1996, I first recognized a naked short sale in a small health care company and then witnessed a buyin. At the time, stock exchanges only tabulated total short interest in a stock and the SEC did not allow the purchase of trade identifier data. So when you see a trade cross the tape, you don’t know if the trade is a buy, buy to cover, sell or short sale. We began lobbying in 1996 to obtain trade identifier data and in January 2005, that data became available. What we’ve done is build a large scale-computing network that purchases trade identifier data from each stock on the 14 stock exchanges in the U.S. each trading day. We have also developed a lot of different ways we use that data.
Can you explain the term, buyin?
A buyin occurs when a regulator or broker dealer forces an account to buy back stock that was previously sold short. The most obvious time you’d see an account buying stock to cover a short position is when the stock price is rising and the short position is losing money. But if an account has violated securities laws by putting on a short position, and if a regulatory or broker dealer discovers this violation, they can force the account to buyin.
What does your company do?
We have created a reporting tool that keeps track of all trading in every stock in the U.S. on a daily basis. Effectively, we have consolidated the tape. That helps our clients understand what’s going on in the trading of their shares.
What’s been the impact of electronic trading?
We have seen much greater short selling by institutions since the late 1990s as electronic trading has grown. Institutions are shorting stocks and claiming exemptions to short positions that we suggest are unfairly claimed. Market makers are effectively holding positions over night and they are only supposed to trade intra day. And they are doing this without borrowing the shares and without covering.
How do you help companies combat manipulative short selling?
Access to trade identifier data to obtain the total number of shares shorted every day in a particular stock can allow companies to understand why their stock is going up or down. In addition, they can take corrective action by working with regulators and communicating with investors. Sometimes 50% to 60% of a stock’s daily turnover can be short selling, which makes it impossible for market makers to cover on the same trading day.
What technologies do you use to address short selling?
We operate a full-scale computing platform and our technology is at the epicenter of everything we do. Initially, we use our platform to consolidate trading data each day, which is a huge feat in itself. We’ve also found a way to dynamically generate research for clients so that management can understand what is going on and can share our research with their current and prospective investors. The ultimate objective is to create a source of information for our clients about what is going on with the trading in their shares and how they can deal with it.
What sort of success have you had and what do you charge?
Over the past 12 years, we have provided data to more than 2,000 companies and at any one time, we may have 10-to-50 clients. The first shock wave companies feel is greater than normal volume in their stock along with a greater than normal decline in their trading price. We start surveillance for clients and monitor the research from our system. We conduct conference calls with management and executives responsible for investor relations to discuss and analyze what is behind unusual trading behavior, whether it is short selling, real selling or short covering. Bottom line is we help companies quantify the problem and develop a plan to deal with it. The typical cost for our service is $1,500 a month.
Do you offer any other products or services?
We are developing another set of technologies that we plan to use to expand into Asia and then into Europe. It will include our current data on short selling plus 10 other categories that institutions and Wall Street use to make investment decisions; things like trading strategies, earnings, seasonality and insider trading. We are creating a global analytic view about how a specific stock is valued and traded so clients will understand the forces at work in their stock.